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# Long Assignment 1 Answer Key - ECON 256 Intermediate...

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ECON 256: Intermediate Microeconomics Long Assignment: 1 1 Answer Key Due Date: Thursday, September 23, 2010 1. Indicate what happens in the market for hamburgers in each of the following case. Label your graphs clearly. Describe what happens to the equilibrium price and quantity. (a) The price of hot dogs increases. Substitutes. The demand for hamburgers increases, resulting in a higher equilibrium price and quantity. Hamburger Market (b) A disease develops that kills a large proportion of cattle. The supply of hamburgers declines, resulting in an increase in the equilibrium price and a reduction in the equilibrium quantity.

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ECON 256: Intermediate Microeconomics Long Assignment: 1 2 (c) The price of hot dogs increases. Simultaneously, a disease develops that kills a large proportion of cattle. The demand for hamburgers increases. The supply for hamburgers decreases. As we can see from the following pair of graphs, we know that as a consequence of these two changes in the market, the equilibrium price will definitely increase. However, it is ambiguous what will happen to the equilibrium quantity; whether it will increase or decrease will rely on whether the relative magnitude of the demand increase or the supply decline is larger.
ECON 256: Intermediate Microeconomics Long Assignment: 1 3 2. Suppose the demand for apartments is P = 1200 – Q while the supply is P = Q . The government imposes rent control (price ceiling) at P = \$300/month. (a) Graph the supply (S 0 ) and demand (D 0 ) curves. Carefully label your axes. (b) Algebraically find the equilibrium price and quantity of apartments. Label these P* and Q* on the graph. 1200 – Q = Q. 1200=2Q. Q* = 600 P* = \$600 (c) What is the market disequilibrium caused by the rent control? In other words, is there a shortage or surplus of apartments? How much is the excess quantity in disequilibrium? Can you calculate this surplus/shortage algebraically? Show your work. Demand: 300=1200-Q D =>Q D =900 Supply: 300=Q S =>Q S =300 Shortage = Q D −Q S =900 −300=600

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ECON 256: Intermediate Microeconomics Long Assignment: 1 4 (d) Suppose demand grows in the market to P = 1400 – Q. How is the market disequilibrium caused by the rent control affected? Does the surplus or shortage get even
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Long Assignment 1 Answer Key - ECON 256 Intermediate...

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